Royal Bank of Scotland targeted by Commission in monopoly inquiry

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The Independent Online

The Competition Commission said yesterday there was evidence that Royal Bank of Scotland could have a potential monopoly of the banking market for small and medium-sized businesses. This follows the bank's takeover of National Westminster Bank earlier this year, which has given it a 25 per cent share of the market.

The Competition Commission said yesterday there was evidence that Royal Bank of Scotland could have a potential monopoly of the banking market for small and medium-sized businesses. This follows the bank's takeover of National Westminster Bank earlier this year, which has given it a 25 per cent share of the market.

In its "issues letter", which was sent out to interested parties yesterday, the commission said it considered that "a scale monopoly situation may exist in favour of the Royal Bank of Scotland Group, which appears to supply at least one-quarter of the services".

The competition inquiry was launched following the report of the government-sponsored inquiry into the banking industry by Don Cruickshank, the former telecoms regulator, which concluded that banks were making £5bn in excess profits.

The commission yesterday insisted that the statement was meant to highlight matters for further consideration. It said: "The Competition Commission is not yet in a position at this stage provisionally to conclude that any complex monopoly situations exist among the banks involved in the inquiry, ie. whether there is any conduct by some clearing banks which prevents, restricts or distorts competition."

Royal Bank played down the significance of the letter yesterday, pointing out that it was a "mechanical" consequence of the fact that in the wake of the NatWest takeover its market share was "marginally" more than 25 per cent.

Fred Goodwin, Royal Bank's group chief executive, said: "We have not been found guilty of anything." Royal Bank shares fell 35p to 1,512p yesterday.

Gordon Pell, the bank's head of retail financial services, said at an open hearing of the commission last week that the success of both Royal Bank and Bank of Scotland in breaking into the English market with minimal infrastructure south of the border showed how competitive the small business market was.

Nevertheless, the fact that Royal bank has been singled out at this stage has highlighted its vulnerability as the biggest player in the market to any government-led measures to increase competition in the sector.

The Competition Commission intends to publish details of possible remedies if it decides these are required next February, while the final report will be submitted to the Government on 19 June next year.

Remedies could include selling some of the small business loan book or even branches to a third party such as Allied Irish Banks, which is keen to expand its share of UK small business banking. But analysts said it was debatable whether customers would be happy at being forcibly transferred to other banks.

The commission said it would need to examine in more detail whether there was any evidence that banks were deliberately not competing aggressively in some areas or products while concentrating on those where competition was fiercest.

Former building societies such as Abbey National and Alliance & Leicester have been hoping that the Competition Commission would act to make it easier for them to break into a market which until now has been the preserve of the big four.

According to data presented in the Cruickshank report, NatWest and Royal Bank combined accounted for 32 per cent of the small business market in the UK. Mr Cruickshank claimed that 83 per cent of small businesses banked with the big four (Barclays, Royal Bank/NatWest, HSBC, Lloyds TSB), with 53 per cent shared between Barclays and Royal Bank/NatWest.

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